Deck 12: Non-Current Liabilities, Debentures Payable and Classification of Liabilities on the Balance Sheet

Question 1

When a long-term note payable is issued,the entire amount should be initially recorded as a long-term note payable.

Answer 1

True

Question 2

The difference between a mortgage payable and a note payable is that notes payable are always long-term.

Answer 2

False

Question 3

Instalment payments for mortgages are normally paid once per year.

Answer 3

False

Question 4

A mortgage payable is a debt that is backed with a security interest in property.

Question 5

Trek Company signed a 9%,10-year note for $151,000.The company paid $2700 as the instalment for the first month.What portion of the first monthly payment is principal? (Round to the nearest dollar. )

A)$15,283
B)$4267
C)$1510
D)$1567

Question 6

On 1 December 2017,Fine Products borrowed $84,000 on a 5%,10-year note with annual instalment payments of $8400 plus interest due on 1 December of each succeeding year.Which of the following describes the first instalment payment made on 1 December 2018?

A)$8400 principal plus $420 interest
B)$4200 interest only
C)$8400 principal plus $8400 interest
D)$8400 principal plus $4200 interest

Question 7

On 1 January 2017,Bratios Company purchases equipment and signs a 6-year mortgage payable for $110,000 at 15%.The mortgage will be paid in equal annual instalments of $29,066,beginning 1 January 2018.Calculate the balance of the Mortgage payable account after the payment of the first instalment.

A)$16,500
B)$82,983
C)$80,934
D)$97,434

Question 8

On 1 December 2016,Fine Products borrowed $96,000 on a 8%,8-year note with annual instalment payments of $12,000.00 plus interest due on 1 December of each succeeding year.On 1 December,the principal amount was initially recorded as Long-term notes payable.What amount of the note payable will be shown as current portion of Long-term notes payable on the balance sheet as of 31 December 2016?

A)$12,000.00
B)$7680.00
C)$24,000.00
D)$19,680.00

Question 9

When a long-term note payable that requires annual instalment payments is initially recorded,it is first recorded as a long-term note payable.Then,at the same date,a second entry is made to reclassify the current portion.

Question 10

The current portion of notes payable must be reported on the balance sheet combined with the long-term portion under non-current liabilities.

Question 11

On 1 July 2016,Avery Services issued a long-term note payable for $10 000.It is payable over a five year term in $2 000 instalments on 1 July of each succeeding year.When the note was issued,the principal amount was recorded in long-term notes payable and a second entry was made to reclassify the current portion.How will this information be shown on the balance sheet dated 31 December 2016?

A)$2 000 shown as current liability;$8 000 shown as non-current liability
B)$2 000 shown as current liability;$10 000 shown as non-current liability
C)The entire $10 000 shown as non-current liability
D)$10 000 shown as current liability only

Question 12

On 1 January 2017,Bratios Company purchases equipment and signs a 6-year mortgage payable for $93,000 at 15%.The mortgage will be paid in equal annual instalments of $24,574,beginning 1 January 2018.Calculate the portion of principal amount paid on the third instalment.(Round to the nearest dollar. )

A)$14,050
B)$10,524
C)$24,574
D)$13,950

Question 13

On 1 March 2017,Vinnie Services issued a 6% long-term note payable for $20,000.It is payable over a 5-year term in $4000 annual principal payments on 1 March of each year plus interest,beginning 1 March 2018.How will this information be shown on the balance sheet dated 31 December 2017?

A)$20,000 shown as current liability only
B)$4000 shown as current liability;$16,000 shown as long-term liability
C)the entire $20,000 shown as long-term liability
D)$4000 shown as current liability;$20,000 shown as long-term liability

Question 14

On 1 January 2017,Bratios Company purchases equipment and signs a 6-year mortgage payable for $80,000 at 15%.The mortgage will be paid in equal annual instalments of $21,139,beginning 1 January 2018.Calculate the portion of interest expense paid on the third instalment.(Round to the nearest dollar. )

A)$21,139
B)$70,861
C)$9053
D)$12,000

Question 15

The current portion of notes payable is the principal amount that will be paid within one year of the balance sheet date.

Question 16

On 1 January 2017,Bratios Company purchased equipment and signed a 6-year mortgage payable for $160,000 at 15%.The mortgage will be paid in equal annual instalments of $42,278,beginning 1 January 2018.The journal entry to record the first instalment payment on 1 January 2018 will include a:

A)credit to Mortgage payable for $160,000.
B)debit to Interest expense for $24,000.
C)debit to Mortgage payable for $42,278.
D)credit to Cash for $18,278.

Question 17

On 1 March 2017,Vinnie Services issued a 5% long-term note payable for $18,000.It is payable over a 3-year term in $6000 principal instalments on 1 March of each year,beginning 1 March 2018.Each yearly instalment will include both principal repayment of $6000 and interest payment for the preceding one-year period.What is the amount of total cash payment that the Vinnie will make on 1 March 2018?

A)$6900
B)$6450
C)$6000
D)$18,000

Question 18

On 1 March 2017,Vinnie Services issued a 9% long-term note payable for $21,000.It is payable over a 3-year term in $7000 principal instalments on 1 March of each year,beginning 1 March 2018.Which of the following entries needs to be made at 1 March 2017?

A) $$\begin{array} { | c | l | l | } \hline \text { Long-term note payable } & \$ 7000 & \\\hline \text { Cash } & & 7000 \\\hline\end{array}$$
B) $$\begin{array} { | c | l | l | } \hline \text { Long-term note payable } & \$ 21,000 & \\\hline \text { Accounts payable } & & 21,000 \\\hline\end{array}$$
C) $$\begin{array} { | c | l | l | } \hline \text { Cash } & \$ 21,000 & \\\hline \text { Long-term note payable } & & 21,000 \\\hline\end{array}$$
D) $$\begin{array} { | c | l | l | } \hline \text { Current portion of long-term note payable } & \$ 21,000 & \\\hline \text { Long-term note payable } & & 21,000 \\\hline\end{array}$$

Question 19

Trek Company signed a 9%,10-year note for $155,000.The company paid $2900 as the instalment for the first month.After the first payment,what is the updated principal balance? (Round to the nearest dollar. )

A)$153,837
B)$157,900
C)$153,263
D)$152,100

Question 20

Trek Company signed a 11%,10-year note for $158,000.The company paid $2700 as the instalment for the first month.What portion of the first monthly payment is interest expense? (Round to the nearest dollar. )

A)$1448
B)$1252
C)$15,867
D)$30,547

Question 21

Which of the following describes the term maturity date?

A)The date on which the debenture is cancelled
B)The date on which the principal amount is repaid to the debenture holder
C)The date on which each interest payment is made
D)The date on which the debenture is issued

Question 22

Which of the following describes a serial debenture?

A)A debenture that repays principal in instalments
B)A debenture that is not backed by specific assets
C)A debenture that gives the debenture holder a claim for specific assets if the issuer fails to pay
D)A debenture that matures at one specified time

Question 23

When a company accrues interest payable on a long-term note at year-end,the interest payable must be shown as a non-current liability on the balance sheet,along with the long-term note payable balance.

Question 24

The Cases Company issues $800 000 of 7%,10-year debentures on 31 March 2016.The debenture pays interest on 31 March and 30 September.Which of the following statements is TRUE?

A)If the market rate of interest is 8%,the debentures will issue at a discount.
B)If the market rate of interest is 8%,the debentures will issue at a premium.
C)If the market rate of interest is 8%,the debentures will issue at par.
D)If the market rate of interest is 8%,the debentures will issue above par.

Question 25

The company will repay the principal amount of the debenture on the maturity date.

Question 26

Which of the following is the amount the borrower must pay back to the debenture holders?

A)Present value
B)Principal amount
C)Market value
D)Stated interest value

Question 27

Which of the following statements is TRUE about a debenture that is issued at a discount?

A)It will be sold for less than the face value.
B)Its interest rate is higher than the prevailing market rate.
C)It will be sold at par.
D)It will repay principal at less than the face value.

Question 28

If a debenture's stated interest rate is the same as the market rate,which of the following is TRUE?

A)The debenture will be issued at a discount.
B)The debenture will be issued at a premium.
C)The debenture will be issued at par.
D)The debenture will be issued for an amount lower than the maturity value.

Question 29

The reason people buy debentures is to:

A)reduce their income taxes.
B)receive dividend payments.
C)earn interest.
D)save money.

Question 30

Which of the following describes a term debenture?

A)A debenture that matures at one specified time
B)A debenture that repays principal in instalments
C)A debenture that gives the debenture holder a claim for specific assets if the issuer fails to pay
D)A debenture that is not backed by specific assets

Question 31

If a debenture is issued at a discount,it will sell for more than face value.

Question 32

Which of the following statements is TRUE about a debenture that is issued at a premium?

A)Its interest rate is lower than the prevailing market rate.
B)It will repay principal at more than the face value.
C)It will be sold at par.
D)It will be sold above par.

Question 33

A debenture is sold for an amount less than its face value.Which of the following statements would explain why?

A)The debenture's stated rate is higher than the prevailing market rate at time of sale.
B)The debenture is not secured by specific assets of the issuer.
C)The debenture's stated rate is lower than the prevailing market rate at time of sale.
D)The debenture's stated rate is the same as the prevailing market rate at time of sale.

Question 34

Debentures are non-current liabilities issued to multiple lenders,usually in increments of $1 000.

Question 35

If a debenture's stated interest rate is lower than the market rate,which of the following is TRUE?

A)The debenture will be issued for an amount higher than the maturity value.
B)The debenture will be issued at a discount.
C)The debenture will be issued at a premium.
D)The debenture will be issued at par.

Question 36

If debentures with a face value of $100 000 are sold at par,the amount of cash proceeds is:

A)$108 800.
B)$100 000.
C)$99 912.
D)$88 000.

Question 37

The time value of money is based on which of the following concepts?

A)The concept that money can be converted into other currencies over time
B)The concept that money loses its purchasing power over time
C)The concept that money becomes obsolete over time
D)The concept that money earns income over time

Question 38

Which of the following occurs when a debenture's stated interest rate is higher than the market interest rate?

A)The debenture will be issued at par.
B)The debenture will be issued at a discount.
C)The debenture will be issued at maturity value.
D)The debenture will be issued at a premium.

Question 39

The interest rate on which cash payments to debenture holders are based is the:

A)amortisation rate.
B)market rate.
C)discount rate.
D)stated rate.

Question 40

A debenture is sold for an amount equal to its face value.Which of the following statements would explain why?

A)The debenture is not secured by specific assets of the issuer.
B)The debenture's stated rate is lower than the prevailing market rate at time of sale.
C)The debenture's stated rate is higher than the prevailing market rate at time of sale.
D)The debenture's stated rate is the same as the prevailing market rate at time of sale.

Question 41

On 1 January 2017,Carter Sales issued $39,000 in debentures for $20,700.They were six year debentures with a stated rate of 9% and pay semiannual interest.Carter Sales uses the straight-line method to amortise the Debentures discount.On 30 June 2017,when Carter makes the first payment to investors,how much will they report as Interest expense? (Round to the nearest dollar. )

A)$1525
B)$37,185
C)$1755
D)$3280

Question 42

On 31 December 2016,Lopez Sales has a Debentures payable balance of $75,000 and a Premium on debentures payable of $6000.On the balance sheet,how will this information be shown?

A)$75,000
B)$75,000 less one-tenth of $6000 for a net balance of $74,400
C)$75,000 less premium of $6000 for a net balance of $69,000
D)$75,000 plus a premium of $6000 for a net balance of $81,000

Question 43

The market rate is the rate used to calculate the actual cash payments made to debenture holders.

Question 44

On 1 June 2017,Smith Services issued $33,000 of 7% debentures that mature in five years.They were sold at a premium,for a total of $34,375.The debentures pay semiannual interest payments on 30 June and 31 December of each year.On 31 December 2017,how much is the total amount paid to investors?

A)$2406.25
B)$1203.13
C)$2310.00
D)$1155.00

Question 45

The time value of money is based on the concept that money earns interest over time.

Question 46

Blanding Company issues $1,176,000 of 16%,10-year debentures at 96 on 31 March 2017.The debentures pay interest on 31 March and 30 September.Assume that Blanding uses the straight-line method for amortisation.What net balance will be reported for the debentures on the balance sheet on 30 September 2017? (Round to the nearest dollar. )

A)$1,176,000
B)$1,131,312
C)$1,126,608
D)$1,128,960

Question 47

Once a debenture has been sold to a debenture holder,it may not be re-sold to other investors,but must be held by the first buyer until maturity.

Question 48

On 1 January 2017,Carter Sales issued $25,000 in debentures for $22,300.They were eight year debentures with a stated rate of 11% and pay semiannual interest.Carter Sales uses the straight-line method to amortise the debenture discount.After the second interest payment on 31 December 2017,what was the debenture carrying amount? (Round to the nearest dollar. )

A)$22,300
B)$22,638
C)$22,469
D)$25,000

Question 49

When a debenture is sold,the selling price is generally equivalent to the present value of the debenture payments.

Question 50

The issue price of a debenture-whether it is sold at par,premium or discount-has no effect on the required principal repayment at maturity.

Question 51

On 1 January 2017,Carter Sales issued $23,000 in debentures for $18,700.They were six year debentures with a stated rate of 10% and pay semiannual interest.Carter Sales uses the straight-line method to amortise the Debentures discount.Immediately after issue of the debentures,the ledger balances appeared as follows: $\begin{array}{l}\text { Debentures payable }\\\begin{array}{lll|l}\hline &&&&\$23,000&& \\\end{array}\end{array}$ $$\begin{array} { | l | l |} \hline { \text { Discount on debentures payable } } \\\hline 4300 &\quad\quad\quad \\\hline\end{array}$$ After the first interest payment on 30 June 2017,what will be the balance in the Discount account?

A)Debit of $4658
B)Debit of $3942
C)Debit of $4300
D)Credit of $358

Question 52

On 1 January 2017,Carter Sales issued $17,000 in debentures for $20,800.They were eight year debentures with a stated rate of 12% and pay semiannual interest.Carter Sales uses the straight-line method to amortise the debenture premium.After the first interest payment on 30 June 2017,what was the debenture carrying amount? (Round to the nearest dollar. )

A)$17,000
B)$17,238
C)$20,562
D)$20,800

Question 53

The balance in the Debentures payable account is a credit of $67,000.The balance in the Discount on debentures payable account is a debit of $2150.How much is the debentures' carrying amount?

A)$2150
B)$67,000
C)$69,150
D)$64,850

Question 54

On 1 November 2016,Archangel Services issued $332,000 of 8-year debentures with a stated rate of 11% at par.The debentures make semiannual payments on 30 April and 31 October.At 31 December 2016,Archangel made an adjusting entry to accrue interest at year-end.How much Interest expense will be recorded at 31 December 2016? (Round to the nearest dollar. )

A)$6087
B)$36,520
C)$761
D)$18,260

Question 55

On 1 January 2017,Carter Sales issued $27,000 in debentures for $33,800.They were eight year debentures with a stated rate of 14% and pay semiannual interest.Carter Sales uses the straight-line method to amortise the debenture premium.On 30 June 2017,when Carter makes the first payment to investors,how much will they report as Interest expense? (Round to the nearest dollar. )

A)$5335
B)$1480
C)$1890
D)$1465

Question 56

Blanding Company issues $1,181,000 of 8%,10-year debentures at 96 on 28 February 2017.The debentures pay interest on 28 February and 31 August.The journal entry to record the issue would include a:

A)credit to Discount on debentures payable for $47,240
B)debit to Cash for $1,181,000
C)debit to Cash for $1,133,760
D)credit to Debentures payable for $1,133,760

Question 57

Blanding Company issues $1,174,000 of 12%,10-year debentures at 99 on 28 February 2017.The debentures pay interest on 28 February and 31 August.Assume that Blanding uses the straight-line method for amortisation.What is the journal entry to record the first interest payment on 31 August 2017? (Round to the nearest dollar. )

A)debit to Discount on debentures payable for $587
B)debit to Cash for $70,440
C)debit to Interest expense for $71,027
D)debit to Interest expense for $69,853

Question 58

On 1 November 2016,Archangel Services issued $301,000 of 5-year debentures with a stated rate of 15%.The debentures were sold at par,and Archangel makes semiannual payments on 30 April and 31 October.At 31 December 2016,Archangel made an adjusting entry to accrue interest at year-end.No further entries were made until 30 April 2017,when the first payment was sent out.How much interest expense was recorded for the period of 1 January to 30 April 2017? (Round to the nearest dollar. )

A)$45,150
B)$22,575
C)$36,120
D)$15,050

Question 59

On 1 June 2017,Smith Services issued $38,000 of 10% debentures that mature in five years.They were sold at par.The debentures pay semiannual interest payments on 30 June and 31 December of each year.On 31 December 2017,how much is the total interest payments made to investors?

A)$1266.67
B)$3800.00
C)$950.00
D)$1900.00

Question 60

On 31 December 2016,Clark Sales has a Debentures payable balance of $93,000 and a Discount on debentures payable of $6350.On the balance sheet,how will this information be shown?

A)$93,000
B)$93,000 less one-tenth of $6350 for a net balance of $92,365
C)$93,000 less discount of $6350 for a net balance of $86,650
D)$93,000 plus discount for a total balance of $99,350

Question 61

The debenture carrying amount is the balance in the debenture payable account subtracted from or added to the balance in either the discount or premium account.

Question 62

The Amazing Widget Company issues $508,000 of 8%,10-year debentures at 105 on 30 April 2017.The debentures pay interest on 30 April and 31 October.Assume that the company uses the straight-line method for amortisation.Calculate the net balance that will be reported for the debentures on the balance sheet on 31 October 2017.

A)$508,000
B)$532,130
C)$534,670
D)$533,400

Question 63

The current portion of notes payable would normally be shown on the balance sheet in non-current liabilities.

Question 64

Balances for debentures payable on the balance sheet will show the balances minus any discount or plus any premium.

Question 65

On 1 January 2017,Finch Company issued $75,000 of five year debentures with a stated rate of 8%.The market rate at time of issue was 12%,so the debentures were discounted and sold for $74,401.Finch uses the effective-interest method of amortisation for debenture discount.Half-yearly interest payments are made on 30 June and 31 December of each year.Which of the following is the correct journal entry to record the first interest payment? (Round all amounts to the nearest dollar. )

A) $$\begin{array} { | c | l | l | } \hline \text { Interest expense } & \$ 4500 & \\\hline \text { Cash } & & \$ 4500 \\\hline\end{array}$$
B) $$\begin{array} { | l | l | l | } \hline \text { Interest expense } & \$ 4500 & \\\hline\text { Discount on debentures } & & \\\text { payable } & & 3000 \\\hline \text { Cash } & & 1500 \\\hline\end{array}$$
C) $$\begin{array} { | c | l | l | } \hline \text { Interest expense } & \$ 464 & \\\hline \begin{array} { l } \text { Discount on debentures } \\\text { payable }\end{array} & & 1464 \\\hline \text { Cash } & & 3000 \\\hline\end{array}$$
D) $$\begin{array} { | c | l | l | } \hline \text { Interest expense } & \$ 3000 & \\\hline \text { Discount on debentures payable } & 1500 & \\\hline \text { Cash } & & \$ 4500 \\\hline\end{array}$$

Question 66

The current portion of mortgages payable would normally be shown on the balance sheet in current liabilities.

Question 67

The time value of money is related to which of the following concepts?

A)Money loses value over time as it is spent.
B)Money loses its purchasing power because of inflation.
C)Money earns interest over time and grows in value.
D)Money can buy extra time.

Question 68

Interest payable would normally be shown on the balance sheet in current liabilities.

Question 69

Cases Company issues $802,000 of 8%,10-year debentures on 31 March 2017.The debentures pay interest on 31 March and 30 September.Which of the following statements is true?

A)If the market rate of interest is 9%,the debentures will issue at par.
B)If the market rate of interest is 9%,the debentures will issue at a premium.
C)If the market rate of interest is 9%,the debentures will issue at a discount.
D)If the market rate of interest is 9%,the debentures will issue above par.

Question 70

GST clearing would normally be shown on the balance sheet in non-current liabilities.

Question 71

On 1 January 2017,Zing Services issued $167,000 of six year debentures with a stated rate of 12%.The market rate at time of issue was 11%,so the debentures were issued with a premium and sold for $191,110.Zing uses the effective-interest method to amortise debentures premium.Half-yearly interest payments are made on 30 June and 31 December of each year.How much Interest expense will be recorded when the first interest payment is made? (Round to the nearest dollar. )

A)$10,020
B)$10,511
C)$11,467
D)$9185

Question 72

Discount on debentures payable is considered to be additional interest expense of the company that issues the debenture.

Question 73

The balance in the Debentures payable account is a credit of $50 000.The balance in the Discount on debentures payable account is a debit of $1 500.The debenture carrying amount is $51 500.

Question 74

The balance in the Debentures payable account is a credit of $50 000.The balance in the Discount on debentures payable is a debit of $1 500.The balance sheet will report the debenture balance as $48 500.

Question 75

If a company issues a debenture in-between interest payments,the company can pay a prorated portion of the interest payment on the regular payment date.

Question 76

Premium on debentures payable is considered to be additional interest expense of the company that issues the debenture.

Question 77

Accounts payable is always shown on the balance sheet in current liabilities.

Question 78

Premium on debentures payable is spread over the term of the debentures and reduces total interest expense.

Question 79

Blanding Company issues $1,020,000 of 8%,10-year debentures at 94 on 28 February 2017.The debentures pay interest on 28 February and 31 August.On 31 August 2017,how much cash did Blanding pay out to investors? (Round to the nearest dollar. )

A)$40,800
B)$39,780
C)$41,820
D)$81,600

Question 80

The Amazing Widget Company issues $515,000 of 12%,10-year debentures at 105 on 30 April 2017.The debentures pay interest on 30 April and 31 October.Assume that the company uses the straight-line method for amortisation.What is the journal entry to record the first interest payment on 31 October 2017? (Round to the nearest dollar. )

A)credit to Premium on bonds payable for $1288.
B)debit to Interest expense for $32,188.
C)debit to Interest expense for $29,612.
D)debit to Cash for $30,900.